National Settlement With Hard-Tactic Telemarketers Returns Million To Consumers

Twenty-Six New Yorkers And Consumers Nationwide To Receive Restitution; Company Took Millions From Entrepreneurs Seeking Help Launching Small Internet-Based Businesses

NEW YORK – Attorney General Eric T. Schneiderman today announced that his office, along with the Federal Trade Commission and the Attorney General of Florida, have reached a $15.6 million settlement with The Tax Club, Inc., which operated out of the Empire State Building, related to deceptive business practices and false advertising seen in telemarketing schemes that targeted consumers operating internet-based businesses. The settlement agreement, entered in the U.S. District Court for the Southern District of New York earlier this month, prohibits future misconduct. The settlement money will be returned to consumers across the country as restitution, including to 26 New Yorkers.

“As a result of this settlement, former Tax Club executives will be giving up a substantial chunk of their personal assets,” said Attorney General Eric Schneiderman. “Before turning over your hard-earned money to telemarketers, it’s important to make sure they have a reputation for delivering what they promise.”

Jessica Rich, Director of the FTC’s Bureau of Consumer Protection, said, “Before you put money into a work-at-home business opportunity, ask questions to determine if it is legitimate. We encourage consumers to read our consumer information to learn how to recognize schemes that promise more than they deliver.”

Information about telemarketing fraud and tips to avoid becoming a victim can be found here.

The investigation into The Tax Club, which also does business as Success Merchant Services, Corporate Tax Network, and Corporate Credit, adversely affected consumers nationwide, including senior citizens. New Yorkers targeted by the company filed complaints with Attorney General Schneiderman’s office beginning in 2010 and continue to come in. The victims lived across the state, including in Binghamton, New York City and on Long Island; and in Cattarangus, Erie, Monroe, Onondaga, Orange, Putnam, Renssealer, Rockland, St. Lawrence and Westchester counties.

The operators of The Tax Club’s telemarketing schemes took millions of dollars from consumers by allegedly misleading them into believing that its purported services would help consumers’ home-based businesses succeed. According to a complaint filed in Manhattan federal court in January 2013 by Attorney General Schneiderman, the FTC and the Florida Attorneys General, The Tax Club, which purchased lists of small business owners from companies that offered internet-based business opportunities, called consumers and falsely claimed to be affiliated with companies that they had already bought services or products from. The lawsuit alleged that the telemarketers pitched business development services, including business coaching services, corporate formation services, and credit development services.

The suit further charged that, after an initial hard-tactic sale, the telemarketing companies called consumers repeatedly to sell other services they claimed were “essential,” typically for several thousand dollars per service. The schemes charged a large initial fee, between approximately $1,000 to $3,000, with a restrictive refund policy and recurring monthly “membership” payments of at least $19.99 a month. Many of the services offered were actually unnecessary—and were never provided.

Under the settlement, the defendants are banned from selling business coaching services and work-at-home opportunities, subject to certain exemptions. They are permanently prohibited from misrepresenting material facts about any product or service, selling or otherwise benefitting from consumers’ personal information and violating the Telemarketing Sales Rule, which established the federal Do Not Call Registry and which prohibits abusive and deceptive telemarketing acts. They must also clearly disclose the seller’s identity, that the purpose of a call is to sell a good or service, and the nature of the good or service.

The settlement includes judgments against three of the former company’s executives. The order against Edward B. Johnson, the company founder, bans him from selling credit development, business planning, and merchant account processing services. He is personally required to pay $2.6 million. The assets to be turned over include bank and brokerage accounts, and proceeds from the sale of real and personal property. Brendon A. Pack, the former director of marketing at The Tax Club, and Michael M. Savage, the former president of The Tax Club, are required to jointly pay $13 million. They are banned from selling business coaching services, credit development services and work-at-home opportunities and are prohibited from calling consumers unless they have express written consent from a consumer to receive calls, or they are fulfilling or providing services previously purchased by the consumer.

In New York, Investigators Robin Womack and Mike Ward assisted with this investigation. The case was handled by Assistant Attorney General Judy S. Prosper, Guy H. Mitchell, Assistant Attorney General in Charge of the Harlem Regional Office, and Jane Azia, Bureau Chief of the Attorney General’s Consumer Frauds Bureau. Marty Mack is the Executive Deputy Attorney General for Regional Offices. Karla G. Sanchez is the Executive Deputy Attorney General for Economic Justice.